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CIRCULAR No

CIRCULAR No.97-TC/TCT OF DECEMBER 30, 1995 OF THE MINISTRY OF FINANCE GUIDING THE IMPLEMENTATION OF DECREE No.96-CP OF DECEMBER 27, 1995 OF THE GOVERNMENT PROVIDING DETAILS FOR THE IMPLEMEN- TATION OF THE LAW ON TURNOVER TAX AND THE LAW ON AMENDMENTS AND SUPPLEMENTS TO A NUMBER OF ARTICLES OF THE LAW ON TURNOVER TAX

Pursuant to the Law on Turnover Tax adopted by the VIIIth National Assembly on June 30, 1990; the Law on Amendments and Supplements to a Number of Articles of the Law on Turnover Tax adopted by the IXth National Assembly on July 5, 1993 and the Law on Amendments and Supplements to a Number of Articles of the Law on Turnover Tax adopted by the IXth National Assembly on October 28, 1995;

Pursuant to Decree No.96-CP of December 27, 1995 of the Government providing details for the implementation of the Law on Turnover Tax and the Law on Amendments and Supplements to a Number of Articles of the Law on Turnover Tax;

The Ministry of Finance provides the guidances for implementation as follows:

A. SCOPE OF APPLICATION OF THE LAW ON TURNOVER TAX

I. SUBJECTS OF TURNOVER TAX PAYMENT, OBJECTS UNDER TURNOVER TAX

According to the provisions in Article 1 and Article 8 of the Law on Turnover Tax and Article 1 of Decree No.96-CP of the Government, business organizations and individuals (commonly referred to as business establishments) of all branches and trades and all economic sectors, irrespective of their business forms, which, with or without business establishments in Vietnam, have their turnover generated in Vietnam shall be subject to the turnover tax in accordance with the provisions of the Law on Turnover Tax.

II. OBJECTS NOT UNDER TURNOVER TAX

According to the provisions in Article 2 of the Law on Turnover Tax and Article 2 of Decree No.96-CP of the Government, the following activities are not subject to turnover tax:

1. Agricultural production which is subject to the tax on the use of agricultural land.

Agricultural products sold by agricultural production establishments which are not yet processed or only preliminarily processed (sorted, peeled, sun-dried, heat dried...) are not subject to turnover tax, such as: preliminarily processed dried tea, unshelled dried cashew nut, coffee bean, corn, sun-dried sliced manioc and potato...

Such agricultural products, having gone through processing as dried rubber latex, condensed rubber latex of various kinds, processed from milky sap through smoke-drying; unshelled cashew nuts, roasted and soaked cashew nuts; sugarcane juice processed into sugar, molasses; milled and husked rice, wheat, corn; oil-bearing leaves, stems, tubers, fruits... processed for oil,etc, shall all be subject to turnover tax applicable to production and processing activities.

2. The production of goods which are subject to special consumption tax of which the production establishment has already declared for payment shall not be subject to the turnover tax for these items at the production process.

If the production establishment has shops for selling goods subject to special consumption tax, such shops must pay turnover tax for their trading activities.

Establishments importing goods subject to special consumption tax shall have to pay turnover tax for their trading activities whenever those goods are put on sale.

3. The production of goods for export (including production or subcontracted production of items for export to foreign countries, export processing zones or selling to the duty free shops) in the following cases:

a/ Goods directly exported or produced by the production establishment under a subcontract signed with a foreign country (including cases where goods turned out by the establishment are sent abroad for promotion sales at fairs and exhibitions).

The production establishment shall have to produce to the tax office:

- The production contract and/or subcontract signed with the foreign country.

- The invoice for goods, subcontracted goods delivered to the foreign country.

- Custom declaration with certification that goods were already exported.

b/ Goods sold by the production establishment or assigned to import-export establishments for export or sale to the duty-free shops (items as stipulated by the Government), under economic contracts in accordance with business license.

The production establishment shall have to produce to the tax office:

- The sale contract or the contract on the export assignment.

- The invoice for sale and delivery of goods assigned for export in accordance with the contract.

- The balance-sheet of the contract (at the time of balancing the contract) which serves as basis for the tax balancing.

- The copy of the business license of the import-export establishment.

c/ Goods produced by the production establishment under a subcontract with another establishment which has directly signed a contract with a foreign country.

Example:

Import-export establishment A has directly signed a contract with a foreign country for the production of garment, then later it signs a contracts to assign the production to establishments B. In this case establishments B shall not be subject to turnover tax. In cases where establishments B do not directly engage in the production and again assign it to establishments C, all the establishments B and C shall have to pay turnover tax.

The subcontracted establishment shall have to produce to the tax agency:

- The contract for the subcontracted production together with the copy of the contract which the subcontracting establishment has concluded with the foreign country.

- The invoice for the delivery of the subcontracted goods in accordance with the subcontract for the production of export items.

- The balance-sheet of the subcontract (at the time of completing the contract) which serves as basis for the tax balancing.

Except cases where production and subcontracted production of export goods are not subject to turnover tax payment as mentioned above, all other production and subcontracted production activities shall be subject to turnover tax, including the following cases:

- Where a production establishment sells its products to other establishments for producing, subcontracted-producing or packaging goods for export.

- Where the production and business establishment supplies materials for other establishment(s) to produce goods, then the former itself undertakes the export of those goods, the subcontracted establishment(s) shall have to pay tax for the subcontracting activities, while the subcontracting establishment shall be subject to the tax for the export activities.

4. The credit activities of banking and credit organizations and financial companies. Such professional service activities as opening bank accounts and payment, trading in foreign currencies, pawnbrokerage and other business activities of these organizations (if any) shall be subject to turnover tax applicable to each kind of activities.

The capital lending activities conducted by other establishments and permitted by law shall also not be subject to turnover tax.

III. ACTIVITIES TEMPORARILY EXEMPT FROM TURNOVER TAX

According to provisions in Article 12 of Decree No.96-CP of the Government, the following activities are temporarily exempt from turnover tax:

1. Radio and television broadcastings according to programs and plans and with State Budget allocations.

2. Geological surveys and topographic activities in accordance with the State programs and plans and with State Budget allocations.

3. Publication of specialized magazines and/or bulletins for internal consumption; if put on sale, such items must be subject to turnover tax.

4. Activities of the water works, which are in direct service of agricultural production, shall also be exempt from turnover tax with regard to the irrigation fees. Activities to conserve the original breeds of domestic animals and/or poultry shall not be subject to turnover tax with respect to the revenue earned from the sale of the offsprings of such original breeds, from the crossbreeding for maintaining the original breeds, or multiplying the original breeds; except in cases where there is revenue from the sale of such products as eggs, milk..., turnover tax must be paid.

5. Activities in repairing and maintaining roads, dredging canals and ports repairing and maintaining bridges, culvets, dykes and dams, building houses for families of fallen soldiers; restoring cutural and art works; preserving environmental hygiene, conserving zoos, flower gardens, public parks, and trees with non-production funds allocated from the State Budget or with contributions from people.

If establishments, which are engaged in repairing, maintaining and dredging... activities and not subject to turnover tax as mentioned above, earn any revenue from such activities, they shall have to pay turnover tax.

Example:

An establishment which is engaged in dredging canals and not subject to turnover tax on its dredging activities obtains revenue from the sale of the dredged soil, sand and/or cobble stones, such establishment shall have to pay turnover tax for its dredging activities with regard to the turnover from the sale of soil, sand and/or cobble stones.

6. Sale of fixed assets (renew them), which have been used for one year or more by the establishment and which have been monitored, managed and depreciated in accordance with the management regime regarding fixed assets.

7. Sale of the State-owned houses to the current tenants and cases stipulating that 100% of the proceed from the sale of houses must be remitted into the State Budget.

8. Medical insurance, social insurance and labor insurance.

9. Sale of discarded materials and substandard products on which deduction has been made for so as to reduce the production cost as well as production and business expenditures; if the deduction is not made to reduce production cost and circulation fees, the turnover tax must be paid.

10. Activities to self cater for the meals in public offices, enterprises, schools or armed force units.

11. Other specific cases shall be stipulated by the Government.

B. BASES FOR CALCULATION OF TURNOVER TAX AND TAX TABLES

According to Article 7 of the Law on Turnover Tax the bases for the calculation of turnover tax shall be the taxable turnover and tax rates.

I. ON THE TAXABLE TURNOVER

According to the provisions in Article 3 and Article 8 of the Law on Turnover Tax and the specific provisions in Article 3 of Decree 96-CP of the Government, the taxable turnover shall be the total sale amount, the subcontracting charges, freight, commision, service charges... (including additional revenues, if any) derived during the tax payment period, no mater whether these sums have been collected or not.

The taxable turnover for a number of activities is defined in details as follows:

1. With regard to production activities (including production, processing, assembly and exploitation), the taxable turnover shall be the revenue from the sale of products produced by the establishment, no matter what these products are: the finished products, semi-finished products, raw materials or materials, machinery and equipment, minerals...

In particular:

- With regard to the electricity production activities, the taxable turnover shall be the revenue earned from the sale of the commercial electricity.

- With regard to the printing activities, the taxable turnover shall be the total revenue earned from the printing of products for customers or for sale. For the printing of books and newspapers, the taxable turnover shall not include the cost of printing paper.

- With regard to publishing activities, the taxable turnover shall be the revenue earned from publishing activities.

2. With regard to the subcontracting activities, the taxable turnover shall be the subcontracting charges, including labor charges, the cost of fuel, motive force, auxiliary materials and other subcontracting expenditures as defined in the subcontract (excluding the primary raw materials and semi-finished products delivered for subcontracting)

In cases where the primary raw materials are supplied by the subcontracted party (including the assigned purchase in any form), this shall not be considered subcontracting activity and shall be subject to turnover tax applicable to production activities.

3. With regard to construction activities:

a/ For construction and installation activities (irrespective of the inclusion of materials and raw materials in the contract or not), the taxable turnover shall be the overall value of the project or part of the project, excluding the value of machinery and complete equipment and interior furnishings associated with the project (if any).

Under this provision, the taxable turnover for construction and installation activities shall be calculated according to the value of the project or part of the project, not depending on the form of the contract and the amount of money received by the construction and installation establishment.

Machinery and complete equipment and interior furnishings, of which the values are not included in the taxable turnover on the construction and installation activities, are the ones which may be installed or purchased separately from the construction of the project, such as: production machinery and equipment of various kinds to be installed in workshops; tables, chairs, beds, wadrobes, television sets...installed in hotels.

If the building contractor supplies machinery, equipment and interior furnishings for the project owner, he/she shall have to pay turnover tax for his/her trading activities.

The value of sanitation wares, wall tile decoration, buildings, electricity and water supply systems... included in the construction project, shall not be deducted from the total value of the project when determining the taxable turnover of the construction and installation activities.

If the building contractor supplies to the project owner materials and raw materials of the types included in the construction project, the value of which is already included in the taxable turnover from the construction and installation activities, he/she shall not have to pay the tax for the trading activities.

Example:

The Hanoi construction company (called Party B) signs a contract to build for an Engineering Factory (called Party A) a workshop with a total value of 8,100 million VND, of which:

- The value of the workshop, roads, surrounding walls (including the value of such materials as bricks, cement, iron..., labor charges and other costs) is: 5,000 million VND.

- The charge for the installation of machinery and equipment is: 100 million VND.

- The value of machinery and equipment is : 3,000 million VND (excluding the installation charge)

Under the contract, Party A has paid Party B a sum of 1,600 million VND, including labor charges and other costs.

The taxable turnover for the construction and installation activities in this case shall be determined as follows:

- The value of the project minus (-) the value of machinery and equipment:

8,100 million VND minus (-) 3,000 million VND = 5,100 million VND

- The amount of turnover tax to be paid at 4% of the taxable turnover:

5,100 million VND multiplied by (x) 4% = 204 million VND.

(As it is shown in the above example, the turmover tax to be paid is not calculated on the sum of 1,600 million VND which Party A has paid Party B)

In cases where the complete equipment is sold by the Hanoi construction company to the Engineering Company, the Construction Company shall have to pay the turnover tax on the sale of the equipment.

The building contractor and the project owner must supply the tax office in the locality where the project is being constructed all the construction contracts and other documents relating to the tax calculation such as payment vouchers, balance-sheets, the settlement accounts of the contracts.

In cases where the contractor and the project owner have failed to supply the tax office with the contracts and documents to be used as basis for determining the value of the construction project to calculate tax, the tax office shall base itself on the prices of each period and determine the taxable prices for each project.

Example:

Mr. T's family built a 3-storey house in Hanoi in 1996. During the construction, Mr. T and the contractor did not fully supply the tax office with the contracts and documents to be used as basis for determining the value of the newly constructed house. Therefore, the tax office shall have the right to determine the taxable prices and the turnover tax which must be paid as follows:

- The area in square meters of each floor: supposed to be 70m2, so the total area of the three floors is 210 m2.

- The average construction cost for such house at the time of the tax calculation is 1.2 million VDN/m2.

Then, the turnover tax to be paid is determined as follows:

- Taxable turnover:

210 m2 multiplied by (x) 1.2 million VND/m2 = 252 million VND

- Turnover tax to be paid:

252 million VND multiplied by (x) 4% = 10.08 million VND

In cases where the construction is completed without determining the basis (or the contractor) for the tax collection, the project owner shall have to pay the tax for the contractor.

b/ For survey, designing and other activities in the building industry, the taxable turnover shall be the whole revenue earned from these activities.

c/ In cases where many units take part in the construction of a project or part of a project under a contract signed directly by the project owner with one or many contractors (called principal contractors), who later sign subcontracts with other contractors (called subcontractors), the taxable turnover shall be calculated only once on the value of the project or part of the project, and shall be defined as follows:

- With regard to a project being constructed in one locality with one tax office responsible for tax collection, the turnover tax paid by the principal contractors shall be calculated on the value of the contracted project; the subcontractors shall not have to pay turnover tax for the subcontracted parts of the project. The tax office shall have the responsibility to inspect and determine the turnover on which the principal contractors have already paid tax for the subcontractors.

- With regard to a project with different parts being built in different localities, the subcontractors must declare and pay turnover tax at the localities where the construction is underway.

When balancing the turnover tax for the whole project with the tax office, the principal contractors shall be entitled to the subtraction of turnover tax which the subcontractors already paid in the localities for the value of various parts of the project, subcontracted from the principal contractors (if there's certification of the tax offices together with the tax payment vouchers or copies of the tax payment vouchers)

d/ For cases where the contractors subcontracts the entire project to other establishments, the contract transferring party must pay turnover tax for its brokerage activities; the taxable turnover shall be the commision or the difference between the contracting price and the subcontracting price.

e/ Business establishments carrying out contracts for the sale of products, materials or equipment to the project owners or building contractors shall have to make declaration for the payment of turnover tax on their production activities (if such products are manufactured by these establishments), or on their trading activities. Such contracts shall not be regarded as construction contracts for tax calculation according to the above provisions.

g/ For the construction of projects for which the payment must be made in different stages, the taxable turnover shall be calculated on the value of each part of the project or the work already done.

4. For the transport activities, the taxable turnover shall be the charges on the transportation of goods, passengers and baggages and other revenues from transport activities such as loading and unloading charges, additional revenues, fees..., included in the transportation fares or turnover.

For air, maritime and railway transport...activities involving international transport, the taxable turnover shall be determined as follows:

- For the transport enterprises which have been granted transport business licenses and which have declared and registered their tax payment in Vietnam, the taxable turnover shall be the transport charges on Vietnamese territory and from Vietnam (first port of departure) to the foreign port of destination where the passengers, their baggages and cargo are delivered. For international air transport activities alone, the taxable turnover shall be the turnover enjoyed by the Vietnamese tax payer in accordance with the international air transport conventions.

- For the foreign transportation establishments which have no business establishments in Vietnam but conduct activities involving the transport of passengers, baggages and cargo from Vietnamese ports to foreign countries, the taxable turnover shall be the transportation fares from the Vietnamese ports (first port of departure) to the foreign port of destination where the passengers, their baggages and cargo are delivered, irrespective of the place where the tickets are bought or forms of payment of the transport fares. Under this provision foreign transport establishments as stipulated here are the overseas owners of the transport means who are not entitled to certificates of transport business registration in Vietnam but conduct the transport activities from Vietnamese ports to foreign countries.

Example:

A sea-going vessel of Hong Kong performs a contract for transporting cargo from Hai Phong port to France, the taxable turnover for this ship shall be the transportation charge from Hai Phong port to the destination port in France, excluding other ports of call on its journey.

Transport activities mean the use of transport means and/or facilities: trains, vehicles, air-planes, vessels, tunnels... for the transportation.

The ports as provided for above include airports, sea ports, river ports, railways terminals, car terminals, stations, yards or warehouses where the goods and/or passengers are transported to and from.

5. For the restaurant activities, the taxable turnover shall be the total revenue from the sale of food, drinks and cigarettes (whether they are manufactured by the establishment itself or bought ouside) and other revenues associated with the restaurant activities, such as dinning room charges, napkin charges and other service charges collected from the customers.

6. With regard to trading activities, the taxable turnover shall be defined either in one of these two forms:

a/ The total revenue from the sale of goods (including additional revenues if any)

b/ The difference between the selling and buying prices of the goods.

- The selling price is the actual price written on the vouchers and/or invoices; the additional charge (if any) from the sales shall not be deducted from the selling price when calculating the difference between the buying and selling prices.

- The buying price is the actual price paid to the seller written on the vouchers or receipts of purchase.

For the imported goods, the buying price used for calculating the difference includes: The buying price at the Vietnamese port (CIF) plus (+) the import duties (if any), plus (+) the special consumption tax (if any). The additional charge (if any) over the imported goods shall not be included in the buying price when calculating the price difference.

The buying and selling prices used as basis for the calculation of the turnover tax levied on each mode of buying and/or selling goods' shall be determined as follows:

- In case of goods sold through agents, the taxable turnover shall be determined by the sales mutiplied by (x) the selling price of the agents. The commission paid to the agents shall be included in the marketing costs (except in cases where the agents must pay turnover tax for the goods owner as stipulated in Point 7 below)

- In case of goods sold by instalments, the taxable turnover shall be the revenue from sale of goods paid by the purchasers, which is determined by the sales multiplied by (x) the selling price (the selling price here is the price collected only once at the time of the sale, excluding the instalment interests).

- In case of a discount of the selling price for the customers who buy a large quantity of goods with prompt payment, the taxable turnover shall be determined according to the actual selling price in such case. In cases where the customers return the goods, the taxable turnover shall not include the amount paid back to the customers.

- For activities in trading in lots with the turnover tax paid on each lot of goods, the taxable turnover shall be determined according to the market selling price in the locality wherefrom the goods are delivered.

7. For the activities of sale and purchase agents and/or assignees, the taxable turnover shall be the commision and other revenues derived from these activities. In cases where the agent or assignee undertakes both the purchase and the sale of goods for the goods owner, he/she shall have to pay on behalf of the goods owner the turnover tax on the trading activities in addition to the turnover tax on his/her agent or assignee activities. The taxable turnover of the goods sold through the agent is the revenue from the sales minus (-) the commission.

For the activities of sale agents for overseas establishments, besides paying the turnover tax on their agent activities, such sale agents shall have to pay the turnover tax and profit tax on the trading activities on behalf of the goods' owner; The taxable turnover of the agents here is the revenue from the sales minus (-) the commission.

In case of the sale of entrusted goods, the establishment selling goods entrusted for sale shall have to pay the turnover tax on behalf of the goods owner on the trading activities in addition to the tax on such activity. The turnover tax shall be calculated on the revenue from the sales minus (-) the commission.

The calculation of turnover tax based on the price difference shall not be applied to the goods sold through agents,entrustees or assignees.

Only those establishments which meet the following conditions shall be recognized as agents, entrustees or assignees and subject to the turnover tax payment on the commission:

- Having license for trading activities.

- Having contract between the goods owner and the agent, entrustee or assignee. The amount of goods, kinds of goods, prices and commission must be clearly stated therein.

The establishment undertaking the task of sale and/or purchase agent, entrustee or assignee must send a copy of the contract to the local tax office which directly manages the establishment.

- Selling the goods strictly in accordance with the prices written in the contract.

- Strictly observing the accounting regime, regime on vouchers and receipts; explicit and exact accounting of actual revenue, commission earned from the agent's, entrustree's or assignee's activities and relevant expenditures. In case of the sale of goods entrusted for sale by non-business people without receipts, the entrustee must write down in the book the name and address of such people, the quantity, type and prices of the goods entrusted for sale.

If the agents, entrustees or assignees fail to meet the above conditions, they shall have to pay turnover tax on the trading activities and the taxable turnover shall be the total revenue from the sale. In case of the sale of goods entrusted by business establishments which have not registered and made declaration of the tax payment, the establishments selling such goods have also to pay the tax on behalf of the goods owner.

8. For the service activities, the taxable turnover is the total revenue from the service activities:

a/ For the repair activities, irrespective of trades and repaired products, the taxable turnover shall include repair charges, the material and fuel and other costs for the repair.

b/ For activities in lodging business, the taxable turnover shall include the room rents and the service charges (if any).

c/ For the tourist business activities, the taxable turnover shall be the total revenue from such activities, except payments made on behalf of the customers, as prescribed in the contract. The travel fares and accomodation charges (if with legitimate vouchers) shall not be included in the taxable turnover for these activities.

d/ For activities in the Post and Telecommunications Service, the taxable turnover shall include postal charges, the earning from the sale of postal stamps, the charges from the installtion and renting of telephones, pagers, faxes..., revenues from the transmission on the telecommunication system including the additional charges (if any) and other revenues from the postal services.

For activities in international telecommunications, the taxable turnover shall be the sum the Vietnamese tax payer in Vietnam is entitled to receive according to international practice.

For the establishments ouside the Post and Telecommunications Service which conduct postal service activities such as telephone, fax..., the taxable turnover shall be the commission they receive or the amount they receive in excess of the charge they have to pay to the Post Service.

e/ For insurance and re-insurance activities, the taxable turnover shall be the revenue from the insurance business (fees on original insurance, fees on re-insurance, fees on evaluation and other revenues from these activities).

In particular, for re-insurance fees collected by the insurance and re-insurance business establishments operating on Vietam's territory, which have already paid the turnover tax on the fees for the re-insurance transfer, the re-insurance establishment shall not have to pay the turnover tax on such re-insurance fees (in accordance with the stipulations in Section I, Circular No.43 TC/TCT of June 5, 1995 of the Ministry of Finance providing guidance on turnover tax for insurance and reinsurance activities).

f/ For pawnbrokerage activities, the taxable turnover shall be the difference between the revenue and the advance payment to the pawner.

Example: A person brings a motorbike to pawn at a pawnshop and is paid in advance (loaned) a sum of 14 million VDN. One month later, when the pawner comes back to return the money and receive back his/her motorbike, he/she shall have to repay the pawnbroker 15 million VND, so the taxable turnover in this case is 1 million VND (15 million VND minus (-) 14 million VND) . In cases where the pawnbroker must sell the pawned property to recover his/her capital, the taxable turnover for such activity shall be the total earning he/she gets from the sale of the property (the total revenue from the sale of the property minus (-) the sum to be paid to the pawner in accordance with the contract or as stipulated by law). Also in the above example, according to the agreement between the pawner and the pawnbroker written in the contract, when the debt falls due, the pawnshop shall be entitled to sell the motorbike to recover both the capital and interests. For example, the motorkike is sold for 19 million VND, the pawnbroker must pay the pawner 4 million VND and the taxable turnover shall be 15 million VDN (19 millionVND - 4 million VND). If the contract fails to specify the amount of money that the pawnbroker must pay the pawner, the taxable turnover shall be the whole revenue from the sale of the motorbike (19 million VND).

g/ For the activities in leasing houses, appliances, machinery and equipment and means of transport..., the taxable turnover shall be the total revenue from such activities. In cases where the lessor is in a foreign country, the taxable turnover shall be the total rent the lessee must pay, including all charges and taxes to be paid.

In cases where a lease is made with rent paid in advance for several months or several years (in any form), the taxable turnover shall be the total revenue that the lessor has already received.

For establishments which render services by leasing things for other establishments or by leasing then sub-leasing them to earn commission from this service, the taxable turnover shall be calculated as for the brokerage activities.

h/ For the "national construction" lottery and other lotteries, the taxable turnover shall be the actual revenue from the sale of tickets and cards (the revenue on prices of tickets and cards minus (-) the commission paid to the sale agents, if any).

i/ For the golf course business, the taxable turnover shall be the revenue from the sale of membership cards, the admission tickets, the coaching charges, the rent of implements and utensils for golf playing and other revenues. For other service activities associated with golf course business such as hotel, restaurant, tourism...businesses, the taxable turnover shall be determined according to each kind of activity.

The turnover from the sale of the membership cards shall be determined by the actual sales (including cards sold in Vietnam and abroad) multiplied by (x) the price written on the cards.

j/ The turnover from the activities in ship chartering shall be the whole revenue from these activities, minus (-) the expenditures spent on behalf of the means' owners under the contract, such as: port fee, loading charges, fees on goods quarantining... (if with regular vouchers).

k/ For advertizing activities, the taxable turnover shall be the whole revenue from these activities: over radio, on television, books, newspapers, billboards, advertizing logos, advertizing displays and other forms of advertisement.

For establishments engaged in advertisement service, which sign contracts with other establishments such as radio stations, television stations, books' or newspapers' offices...for carrying out part(s) of the advertisement services, the part of turnover transferred to other establishments for performing the advertisement (determined according to the contract and the actual payment), shall be deducted from the taxable turnover for advertizing activities. For such activities as billboard painting, electronic billboard making, patterning the advertisement, programming the advertisement... conducted by the establishments themselves or by the outside establishments, the taxable turnover shall be the advertisement costs, which shall not be deducted from the advertisement turnover.

If an advertisement service establishment signs a contract for advertisement services then later transfer the contract to another establishment for the full performance of the advertisement service and only enjoy commission from this service, the turnover tax shall be collected as for the brokerage activities.

9. In a number of cases, the taxable turnover shall be stipulated as follows:

a/ Business establishments using their goods, materials, machinery and equipment... for exchanges, debt payment, internal consumption, or donation as gifts to other peoples, including customers under any form of marketing or advertisement, shall be all subject to the turnover tax. The taxable turnover shall be determined according to the sale prices of goods of the same types and at the same moment.

b/ Activities in self-performing the capital construction shall be subject to turnover tax and the taxable turnover shall be the value of the project or part of the project.

Activities in planting trees, tending perennial trees during the capital construction before they are turned into business shall not be subject to turnover tax.

10. Business establishments with revenues in foreign currency(ies) are entitled to pay turnove tax in foreign currency(ies) or in Vienam Dong. In cases where the payment is made in Vietnam Dong, it must be based on the exchange rates announced by the State bank of Vietnam at the time of the tax calculation. If the payment is made in foreign currency(ies), foreign currency(ies) must be convertible.

II. TURNOVER TAX RATES

Based on the amended and supplemented turnover tax tables issued together with the Law on Amendments and Supplements to a Number of Articles of the Law on Turnover Tax and the provisions in Article 4 of Decree No.96-CP of the Government providing for the application of the turnover tax rates, the Ministry of Finance provides the following guidances for the application of turnover tax rates with regard to each branch, trade or each business activity:

1. If a business establishment operates in different branches and trades and is subject to different turnover tax rates, it shall have to pay the turnover tax at the rate specified for each branch or service. If it is impossible to determine the separate turnover for each branch or trade, highest tax rate for the branch or trade in business shall apply.

2. If an establishment producing commodities which are subject to both the tax rate for branch or trade and tax rate for the utility of the commodities, it shall be entitled to the utility tax rate when such tax rate is lower than that for branch or trade.

Example:

An establishment produces plastic toys. The tax rate applied for the plastic industry is 4% while the tax rate for the production of childrens' toys is 0.5%, then the tax rate of 0.5% for childrens' plastic toys shall apply.

3. An establishment engaged in the exploitation or production activities which directly uses its products for the production of other products shall pay turnover tax at the tax rate for the branch or the manufactured products, and the taxable turnover shall be the turnover from the sale of the final products.

Example:

- An establishment extracting iron ores which are used for refining into steel shall be subject to the tax rate applied to metallurgical activities with respect to steel products.

- An establishment which produces yarn and fabrics and uses the produced yarn as material for the production of fabrics shall not have to pay the turnover tax on the yarn used for the production of fabrics and the turnover tax shall be calculated on the turnover from the sale of fabrics at the rate specified for textile industry.

Quarrying activities shall be subject to the turnover tax for the exploitation activities on the turnover from the sale of such products as ashlars and stones of various sizes that the establishment has directly crushed or ground. If the establishment produces marbles for walling or flooring, or granites, it shall be subject to the tax rate applied for the production of such construction materials.

4. The production and assembly of electronic goods shall be subject to a tax rate of 8%.

Particularly:

- A tax rate of 4% shall apply to the production and assembly of special-purpose electronic equipment and machinery, computers, including:

+ Production and assembly of electronic machinery and equipment (telephone exchange, receivers and transmitters and equipment for radio and television relay stations) for special use in telephone, wireless communications, radio and television.

+ Production and assembly of radar equipment.

+ Production and assembly of special-purpose electronic equipment for the control traffic lights system, traffic siren, burglar alarms, fire alarm system.

+ Production and assembly of electronic control equipment for installation at production establishments or in machines and equipment and means of transport.

+ Production and assembly of special-purpose electronic apparatuses and equipment to be used in researches, experimentations and medical service.

+ Production and assembly of computers and accompanying printers.

In case of the production of special-purpose electronic equipment in complete sets accompanied by common electronic products such as receivers and transmitters accompanying with amplifiers and microphones...the same tax rate of 4% shall apply to the accompanied equipment.

Beside the above-mentioned special-purpose electronic products, or the production of and assembly of such products as television sets, video recorders, radios, casette recorders, amplifiers, speakers, microphones, telephones, pagers... the tax rate of 8% shall apply.

5. For the production of electrical products and communication cables including metal and optical cables, and electric wires of all kinds, a tax rate of 4% shall apply.

6. Production of electrical products, including electric fans, washing machines, air conditioners with an electronic controller shall be subject to turnover tax at the rate applied to engineering products.

- For the production and assembly of such products as locks, scales (except electronic scales), safes, motorbikes, sewing machines, alunminium and enamelled utensils, tin or zinc-coated iron roofing sheets, iron barrels or tanks a tax rate of 2% (group 5, Section I, Turnover Tax Table) shall apply.

7. For the production of basic chemicals a tax rate of 1% shall apply; the basic chemicals shall be determined according to the list promulgated by the Ministry of Heavy Industry (now the Ministry of Industry).

For the production of rat, cokroache, fly and mosquito killers of different kinds (including mosquito joss-sticks), a tax rate of 0.5% shall aplly.

8. For the production of building materials, a tax rate of 4% shall apply:

- Concrete mortar, including different kinds of mortar with cement and other agglutinative substances like asphalt..., used for building workshops, roads, bridges... or for the production of pre-frabricated concrete structures.

- For the production of cement, a single tax rate shall apply based on the Vietnamese grades of the cement, including the cement produced from clinke imported from overseas or bought from other establishments.

9. A tax rate of 6% for the production of alcohol (group 13, Section I) shall be applied to alcohol used exclusively for medical service and industry (based on the products' properties or economic contract or sale invoice). Alcohol used for the production of liquors, spirits shall be subject to the special consumption tax; in cases where it is impossible to define the kind of alcohol, the special consumption tax shall apply.

10. A tax rate of 2% shall apply to the production of ice used in fisheries, based on the economic contract and sale invoice for the fishery establishments to use in freezing and preserving aquaproducts. In cases where the ice producing establishment sells ice to consumers of various kinds that makes the identification of the ice used for fisheries impossible, a tax rate of 6% shall be applied on the total turnover of the establishment.

11. Production of yarn, textiles and cotton:

Synthetic yarn subject to a tax rate of 4% includes those produced from synthetic fibers or synthetic fibres mixed with cotton and natural fibres.

12. For the production of audio and video tapes, recorded laser discs, a tax rate of 1% shall apply to products directly made by the establishment through its own programs, and its own audio-visual recording in audio and video tapes and laser discs for publication under the publication permit granted by the cultural service.

Service activities in tape recording and duplicating shall be subject to a tax rate of 8%.

13. A tax rate of 1% shall apply to the production of medical and sanitary cotton, bandages, including gauzes of various kinds, medical cotton, bandages and women's sanitary towels with sanitary standards certified by the quality control agency or medical agency.

14. Agricultural production establishments engaged in the processing of agricultural products shall have to pay turnover tax at the tax rate specified for each branch or each kind of the processed products: processing liquid rubber latex into dry or condense latex: 4%; processing coffee, cashew: 6%; processing tea: 4%...

Agricutural production establishments which are not subject to the agricultural land use tax and earn revenue from the sale of agricultural products (of cultivation and husbandry), including the fish cage-rearing or fry catching shall be subject to a tax rate of 2%. A tax rate of 1% shall be applied exclusively to the production of plant and animal breeds..

Activities such as ploughing, harrowing and prepairing soil for agricultural production shall be subject to a tax rate of 2%.

15. For subcontracting activities a tax rate of 6% shall apply, irrespective of branches, trade or goods to be subcontracted for production.

In cases where the business establishment supplies materials for other establishments to process into commercial products, the formers shall have to pay turnover tax at the tax rate applied to the production branch and on the turnover; if the establishment sells these products to a foreign country (export), it shall have to pay turnover tax on its export activities at a tax rate of 1% on the export turnover.

16. A tax rate of 1% for the intramunicipal transportation of passengers by buses shall also apply to the transportation of passengers from the downtown to adjacent areas.

Example:

Transportation of passengers from Hanoi to Ha Dong provincial town or from Ho Chi Minh City to Bien Hoa by buses shall apply the same fares for intramunicipal transportation as defined by the State.

The intra municipal transportation of passengers by taxis, tricycles... shall be subject to a tax rate of 4%.

17. Tax rates applied for trading activities:

a/ The sale of the following goods shall be subject to a tax rate of 1% (as stipulated in Point 1, Section IV, Turnover Tax Table):

- Foodstuff: rice, corn, potato, manioc and processed foodstuff such as noodle, instant noodle...

- Fresh food and vegetables.

- Production materials and raw materials, including: fuel of various kinds (except petrol), oils, lubricants, grease, coal of various kinds (including coal made in the forms of cakes and perforated blocks), thin cloth, canvas, yarn, cotton fluff.

- Transport means: ships, boats, motorboats, trucks, passenger cars, small diesel lorries, improved carts, forklifts, cranes (excluding bicycles, motorcycles and cars of 24 seats or less).

- Machinery and euqipment used as means of production: machine tools, motors, equipment in complete sets and equipment not in complete sets... electric cables, communications cables and other production tools, fishing gears.

- Sale of spare parts and assessories of machinery and equipment, transport means (excluding spare parts of such consumer goods as bicycles, motorcycles, clocks, cameras...).

- Sale (distribution) of books and newspapers, movie films (ready for screenings).

b/ A business establishment dealing in goods which cannot be determined as machinery, equipment, production materials or common goods shall be subject to a tax rate of 2%.

Example:

The sale of the following goods shall be subject to a tax rate of 2%:

- Plywood or pressed wood, furnitures made of wood and other materials, glass, looking-glass, paints, color dyes, wood doors and windows, plastic doors and windows, glass doors and windows with aluminium frames and other interior fixtures including air conditioners, water heaters, bathtubs and sanitation wares,etc...

- Electric, electronic and mechanical appliances and instruments, including telephones, pagers, hand-drills, sewing machines, water pumps of under 10 m3/hour, transformers, voltage stabilizers of under 15A, electric wire , swiches, plugs and other common electric utensils, knives, scissors, pliers, hammers and tool kits for common mechanical and electric repair.

c/ In-lots trading activities shall be subject to the tax rates applied for each group of the traded commodities. If it is impossible to identify which group the commodities belong to, a tax rate of 2% shall be applied on the whole revenue from the lot.

d/ Hotels or rastaurants having souvernir shops, if their turnovers can be separately defined, shall be entitled to the turnover tax rate applicable to trading activities.

18. Trading in golds, silver, gems, the following tax rates shall apply:

a/ For purely buying and selling activities, the tax rate on trading activities shall apply. In cases where the establisment carries out by itself such activities as flowing, polishing, cutting or making gold into common rings, cutting gold into pieces for sale at the same price as for gold, such activities are considered trading activities.

19. For restaurant business, the tax rate is 6%.

Except for high-grade restaurants and specialty food restaurants, a tax rate of 10% shall apply with regard to the following:

- Well-furnished restaurants.

- Restaurants which prepare and sell dishes which are rare and/or precious or by menu.

20. For a number of services, the applicable tax rates shall be as follows:

a/ For overseas remittances service with commission, the tax rate is 6%, the same as that applied to other professional services of banking and credit organizations or financial companies.

b/ For such activities as watching cars, motorcycles, bicycles, conducting business in video games and other games like leasing table-tennis tables, billiard tables or football game tables, selling tickets for admission into entertainment centers, a tax rate of 4% shall apply (other services).

c/ For such transportation service activities as: recommending or renting transport means for the goods owner, recommending goods sources to the owner of the transport means, including services for procedural paper work, the inspection and supervision of the transportation, the preservation of goods... for goods owner; in cases where organizations or individuals providing such services only enjoy the commission while expenditures on renting transport means, on loading and unloading services are all paid by the goods owner or are paid by such organization or individual on behalf of the good owner as defined in the economic contract, the unit providing such services shall have to pay turnover tax at a tax rate of 15% on the revenue or the commission earned from such services (as specified in group 15h, Section VI, Turnover Tax Table), no matter what the unit is called in the contract as agent, broker or transport service provider.

In cases where the unit signs with the goods owner a package contract for the transportation of goods, which, however, fails to specify expenditures and commission, the turnover tax shall be calculated at the rate of 2%, as applicable to transport activites; the taxable turnover shall be the total revenue from the package contract (irrespective of the transport provider, whether the unit itself or a hired outsider)

d/ For postal service activities, the applicable tax rate is 6%.

A unit of the Post Service conducting other activities shall be subject to the turnover tax levied on each kind of its activities (in case it's an independent accounting unit) as follows:

- The publication of books and newspapers shall be subject to the tax rate applicable to publication activities.

- Business activities such as selling machinery and equipment, telephones, pagers... shall be subject to the tax rate applicable to trading activities.

- Activities such as transmitting newspaper pages shall be subject to the tax rate applicable to newspaper printing and publishing activities.

Other units ouside the Post Service, which provide the telephone, fax...services shall be subject to a tax rate of 15% on their revenue, that is the commission or the excess charges as compared to the charges paid to the Post Service (the same as in agent activities). If the parts of revenues they are entitled to receive can not be determined separately, the turnover tax must be paid at the tax rate applicable to the Post Service, that is 6% calculated on the total charges, collected from customers.

e/ Activities in horse race business shall be subject to a tax rate of 20% applicable to the turnover from the sale of tickets in horse betting (the turnover still includes reward payments and other expenditures), and a tax rate of 4% for the turnover from the sale of tickets to the spectators.

f/ Activities in renting wedding dresses and other appliances shall be subject to a tax rate of 10%.

g/ The activities in ship salvage service (survey, refloating and towing the wreck ashore) shall be subject to a tax rate of 2%.

h/ A tax rate of 30% shall apply to the activities in pilotting and towing sea ships.

The General Taxation Department is responsible for controlling, guiding and inspecting the application of the tax rates to business establishments based on the Turnover Tax Table and the above provisions. In cases where it is not clear which tax rate shall be applied, the General Taxation Department shall report to the Ministry of Finance for guidance.

C. REGISTRATION, DECLARATION AND PAYMENT OF TURNOVER TAX

According to provisions in Articles 10 and 11 of the Law on Turnover Tax, all business establishments shall have to:

1. Make registration and declaration of turnover tax:

a/ Business establishments must submit their tax declarations and registrations (in accordance with the standard form) to the local tax offices where they are granted business licenses or investment licenses. In case where the establishments have not been granted licenses yet, but have actually conducted business activities, they must register and make tax declaration when starting their busineses. If establishments, which have already registered and made tax declaration, have some changes in business lines or branches, merging, dissolving or organizing branch shops... they must make an additional registration of such changes with the tax offices.

Branch establishments, shops... of the Corporations or companies must register and declare the tax payment with the local tax offices where they are located.

Construction establishments must register and make tax declaration with the tax offices of localities where their head offices are located and at the same time must register and declare for tax payment with the tax offices of localities where the projects are being constructed.

Establishments which conduct their production activites in a locality (province or city directly under the Central Government) but their head offices and transaction offices are located in other localities shall have to register and declare the payment of turnover tax for their production activities at the localities where their production establishments are located.

Example:

Dong Nai Milk Factory (conducting its production activities in Dong Nai province), which has a transaction office in Ho Chi Minh City, must register and declare the milk production tax payment in Dong Nai province; in cases where the Factory has set up subsidiaries and shops which directly sell its products in other localities (provinces or cities), such subsidiaries and shops must register and declare the turnover tax payment for their trading activities in such localities.

b/ Trade establishments wishing to pay turnover tax on the difference between the selling and buying prices, must submit their requests to the local tax offices for consideration and decision.

Trade establishments which meet the following conditions shall be entitled to the calculation and payment of turnover tax on the difference between the selling and buying prices:

- Having invoices, receipts and dossiers of sale and purchase (which all must be regular and lawful). The selling and buying prices written on the vouchers, invoices and receipts must be the actual prices.

- Keeping records strictly in accordance with the accounting regime, determining the difference between the selling and buying prices of goods.

- Having already registered the payment of the turnover tax on the price difference with the tax office which, after its examination, certifies that the establishment has met all the conditions.

After receiving the request from the turnover tax-paying establishment, the tax office has the responsibility to conduct the examination and inform in time the establishment whether it is entitled to pay the turnover tax on the differnce or not (if not, the reasons must be clearly stated).

The establishment can start the payment of the turnover tax on the price difference only when the tax office has already examined and certified that it has met the conditions and inform it of the permission for the application.

c/ With regard to the establishments applying contractual regime for business collectives and individuals (irrespective of the business branches, services or contractual forms), the collective or individual that will perform the contract must diretly register and declare the tax payment with the managing tax office; in case of a package contract with self-responsibility for all expenditures and revenues, the collective or individual package-contractors must additionally pay other taxes and fees as stipulated by law. The contracting establishments must pay tax on the revenues paid to them by the contractors. The tax office shall have to concretely determine the taxable turnover in conformity with each contractual form.

With regard to the tax registration and declaration form and application for tax payment on the price difference, the establishment shall have to submit two copies to the tax office for examination and certification (one copy shall be returned to the business establishment, the other shall be kept at the tax office for record).

2. Declaration for the payment of turnover tax: According to provisions in Article 5 of Decree No.96-CP, production or business establishments shall have to declare and pay the turnover tax at the tax offices of the localities where they conduct the production or business activities.

The business establishment shall have to make monthly declaration of turnover tax calculation in accordance with the stipulated form and send it to the tax office. The time-limit for sending the monthly declaration is the 5th day of the following month at the latest. The construction establishments, no mater what they are the principal contractors or the subcontractors, must make the declarations at the tax office of the locality where the construction is underway, on the revenues from the projects or parts of the projects (even if they are not subject to the turnover tax payment, their declarations must still be submitted).

The tax office has the responsibility to examine and calculate the tax and annouce the amount of tax to be paid for the previous month by the tax payer before the 10th day of the following month.

In cases where the business establishment fails to submit the tax delaration to the tax office or has submitted an incomplete or improper one, the tax office shall have the right to base itself on the business situation of the establishment and data collected through inspection to determine the taxable turnover as well as the amount of tax to be paid, then inform the establishment thereof for implementation. If the business establishment disagrees with the amounts of turnover and tax determined by the tax office, it shall have the right to lodge a complaint; but pending the resolution it shall still have to pay the fixed amount of tax.

For construction establishments which are subcontractors and not subject to the turnover tax on the construction and installation activities (for the tax has been already paid by the principal contractors), the tax office shall have to examine and certify concretely the turnover not subject to turnover tax so that the establishment shall have basis for its tax balancing.

With regard to the small business households, the tax payment shall be based on the package revenue, and the tax office shall base itself on the package tax rates to inform the amount of tax that each business household shall have to pay.

The tax payment declaration for a number of cases are stipulated as follows:

a/ Business establishments of the Trade Service which have fixed locations but take their goods to sell outside the areas covered by their business registration, shall have to declare the tax payment before delivering their goods as applied to trade-in-lots activities and the portion of turnover for which the trade-in-lots tax has been already paid shall not be subject to the turnover tax on the sales of goods.

b/ Trading establishments which take goods from their stocks to their shops for sale, or transport goods from one shop to another shop of their own shall not have to pay the turnover tax on the intra-establishment transported goods, if with regular vouchers envidencing that those are intra-establishment transported goods.

Each trading establishment shall only have its turnover tax calculated and paid for its trading activities in one of the two following forms: the tax is calculated either on the turnover or on the difference between the selling and buying prices of the goods. This provision is applicable to establishments which have registered and declared their tax payment and settled the turnover tax with the local tax office. Business establishments paying tax on the difference shall be entitled to a compensation for the taxable difference between different categories of goods but with the same tax rates and also to the compensation for the difference between the months in a quarter.

If an establishment, which pays turnover tax on the price difference, violates the stipulated conditions, the tax office shall, depending on the seriousness of the violation, impose a penalty for the tax violation and at the same time decide or annouce the suspension of the tax payment on the difference by the establishment as from the month when it has discovered that the establishment failed to observe the stipulated conditions. Any fines on the false tax statement or evasion by the violating establishment must be calculated on the turnover of such establishment.

b/ If an import-export establishment which buys goods from a production establishment and undertakes the export under assignment sells the goods inside the country, it shall, besides paying the turnover tax at the tax rates applied to trading activities, have to pay the turnover tax or special consumption tax at the tax rates applied to the production branch or manufactured goods items (which should have been paid by the production establishment).

The establishment shall have to make a detailed list of purchases for export but which have been sold in the country instead, and the selling and buying prices which serve as basis for the tax calculation; if the buying price cannot be determined for the calculation of tax on the production activities, the tax must be calculated according to the selling price.

Example: An establishment buys garments for export but sells them inside the country instead.

- The buying price at the establishment: 60,000 VND/set

- The selling price of goods inside the country: 80, 000 VND/set.

- The turnover tax to paid by the establishment: 4,000 VND/set, including:

+ The tax paid at the tax rate of 4% as applied for the apparel industry:

60,000 VND multiplied by (x) 4% = 2,400VND

+ The tax paid at the tax rate of 2% as applied for the trading activities: 80,000 VND multiplied by (x) 2% = 1,600 VND.

If the buying price is not determined, the turnover tax to be paid shall be calculated totally on the selling price, concretely: 80, 000 VND multiplied by (x) (4% + 2%) = 4, 800 VND.

c/ A production establishment with dependent accounting shops and subsidiaries which directly sell products turned out by the establishment itself, when calculating and balancing the turnover tax to be paid for the goods sold at such shops and subsidiaries, must calculate the turnover tax to be paid at the rate set for the production branch on the actual revenue from the sale of goods at the shops and subsidiaries. However, the establishment is entitled to deduct the amount of the turnover tax already paid at the localities by the shops and subsidiaries for their trading activities. In cases where the shops and subsidiaries sell other kinds of goods, the establishment must make a separate tax declaration and shall not be entitled to deduct this from the amount of tax to be paid by the establishment.

The establishment must produce to the tax office the vouchers on tax payment together with a list of goods produced by itself and sold at its subsidiaries.

Example:

Seasonings Company A in Bien Hoa has a network of shops selling its products in some provinces:

- In 1995, the Company delivered from its stock 1000 tons of seasonings for sale, of which:

+ 600 tons were sold at Bien Hoa production establishment at a price of 10 million VND/ton and the revenue earned therefrom was 6,000 million VND.

+ 400 tons were delivered to its shops, which actually sold 360 tons during the year at a price of 11 million VND/ton and the revenue was 3,960 million VND on which the turnover tax was already paid for the shops' business activities in the localities.

3,960 million VND multiplied by (x) 2% = 79.2 million VND.

The turnover tax that the Company had to pay in 1995 is determined as follows:

- Taxable turnover: 6,000 million VND plus (+) 3,960 million VND = 9,960 million VND.

- Turnover tax to be paid: 9,960 million VND multiplied by (x) 6% (tax rate for production activities) = 597,6 million VND.

After deducting the amount already paid by its shops in localities where goods were sold, the amount of tax to be paid in Bien Hoa in 1995 was:

597.6 million VND minus (-) 79.2 million VND = 518.4 million VND

The production establishment, when delivering its products from the place of production to its attached shops and subsidiaries, must write an invoice of sale which clearly states the sale price. Every month, when making the turnover tax payment daclaration, if the production establishment does not have lists of goods and vouchers to serve as basis for calculating the turnover and the amount of tax already paid for the goods sold at the attached shops and subsidiaries has not been determined, such establishment shall have to pay turnover tax for the total volume of goods delivered to its shops and subsidiaries at the selling price at the place of production.

The shops and subsidiaries of the establishment must register, declare and pay the turnover tax at the tax offices of the localities where the goods are sold and must use the receipts bought at these tax offices.

The above provisions on tax declaration and calculation with regard to the goods produced by the establishment and delivered for sale at its dependent shops and subsidiaries, shall not apply to: shops with cost accounting independent from the establishment; shops applying the regime of package business contracts and shops selling goods subject to the special consumption tax.

e/ The lottery companies shall have the responsibility to declare and pay the turnover tax on behalf of their selling agents before paying commission to them.

f/ The Vietnamese tax paying units which sell goods for foreign parties as sale agents; which hire foreign machinery, equipment and means of transport; which provide services for foreign parties, which do not directly register the tax payment in Vietnam, shall have to register, declare and pay their turnover tax and profit tax on behalf of the foreign parties before paying to the foreign parties revenues from the sales, and settling the rents and service charges. The amount of turnover tax to be paid by the Vietnamese units shall be determined according to the tax rate set for each branch, service or business activity, except for the profit tax which shall be determined concretely by the Ministry of Finance based on the turnover of each branch or service.

For the performance of the contracts mentioned above, the units selling goods or hiring means of transport... must send a copy of the contract to the tax office; if the units fail to deduct the amount of taxes they have to pay on behalf of the foreign parties from the revenue to be paid to the foreign parties, they shall have to pay taxes on behalf of the foreign parties.

f/ With regard to foreign airlines having represen- tative offices or branches to sell tickets in Vietnam, such offices or branches shall have to register, declare and pay turnover tax on behalf of their agency.

3. Time limit for tax payment:

The tax office which directly manages the tax paying unit shall base itself on the business situation and the average monthly amount of tax paid by the unit to fix the date in the month for tax payment. With regard to the units which have to pay a large amount of tax, the monthly tax payment may be fixed periodically once every 5, 10 or 15 days. Based on the periodic revenue, the units shall pay the turnover tax at the State Treasury.

Every month, on the basis of the tax amount to be paid and the fixed date for tax payment written in the tax notice from the tax office, the business establishment shall pay the tax at the State Treasury; in areas, where the treasury offices have not yet set up tax-collecting stations, the local tax office shall directly collect the tax and pay the tax money to the State Treasury as prescribed by law. Establishments which have made temporary payment of tax at fixed dates set by the tax office shall have to pay in full the remainder (in accordance with the tax notice); if they have paid the tax in excess, the excess amount shall be deducted from the amount to be paid for the following month. In whatever circumstances, the deadline for the payment of the previous month's tax shall not be later than the 15th day of the following month. If the payment of the previous month's turnover tax is made after the 15th day of the following month, the tax paying unit shall be fined for its late payment.

- Establishments trading in lots shall have to declare and pay the turnover tax and profit tax on each lot at the local tax office before transporting the goods away.

To ensure the uniform tax calculation in each locality and to prevent the loss of tax on prices, the tax office at the district or equivalent level should conduct survey of all the fluctuations of the market prices of goods items which the in-lots traders have often traded in the locality, then inform this to the tax stations or tax teams so that they can use this as basis for determining the taxable prices for trading-in-lots activities.

- A fixed business establishment, which send its people out to buy materials and goods and transport its goods for sale or exchange with other establishment(s) or transport the goods within itself, must have all the vouchers and receipts required for the goods transported on road. If the establishment does not have such receipts and vouchers as stipulated, it shall have to pay the turnover tax as for the trading-in-lots activities, if they are the import goods, the establishment shall have to pay import tax in arrears.

4. For all tax collections, the tax collecting office must issue receipts on tax collection or vouchers certifying that tax has been collected from the tax payer, with receipts or vouchers uniformly issued by the Ministry of Finance.

The tax office shall have the responsibility to guide and inspect the business establishments in their implementation of the regulations in keeping records in books and in using vouchers or receipts in accordance with the regulations; as well as organize the management of the tax collection in conformity with the professional process and regulations.

5. Pursuant to Article 10 of Decree No.96-CP of the Government providing guidance for the implementation of Article 14 of the Law on Turnover Tax thereby, the small business households are eligible for the regime of tax payment according to quota set for each period.

A small business household which is eligible for the regime of turnover tax payment according to set quotas is the one which has the average monthly revenue provided for each branch or trade as follows:

- Production branch with revenue under 8 million VND

- Construction branch with revenue under 8 million VND

- Transportation branch with revenue under 6 million VND

- Trading branch with revenue under 8 million VND

- Restaurant business with revenue under 6 million VND

- Services business with revenue under 4 million VND

The small business households, which have strictly observed the regulations on vouchers and receipts regarding sales and purchases and accountancy regime, shall be entitled to the tax calculation and payment according to their declarations.

If establishments entitled to the tax payment according to their declarations have failed to fully observe the regulations on vouchers and receipts regarding sales and purchases and accounting regimes, the tax office shall base itself on their business situation to determine the turnover and the amount of tax to be paid.

D. TAX REDUCTION AND EXEMPTION

Pursuant to Article 18 of the Law on Turnover Tax and stipulations in Article 11 of Decree No.96-CP of the Government, the Ministry of Finance stipulates the procedures and competence for considering tax reduction and exemption as follows:

I. CASES ELEGIBLE FOR TAX REDUCTION OR EXEMPTION

1. Turnover tax is exempt for the elderly, disabled and small producers and traders engaging in small and petty businesses, sidelines and auxilary crafts in the family with monthly incomes equivalent to the current minimum salary of 120,000 VND (such incomes are determined by the revenue minussing (-) the expenditures from the revenue).

For a business household entitled to the regime of turnover tax payment according to set quota under Article 14 of the Law on Turnover Tax, it shall be exempted from turnover tax for the month when it conducts business for less than five days; if the number of days is less than 15 days, it shall be eligible for a 50% reduction of the turnover tax for that month; if the number of days exceeds 15, it shall have to pay fully the tax for that month

The Taxation Sub-Department shall have the responsibility to coordinate with the Consultancy Coucils of the commune or district in examining and determining the production and business households with low incomes, which are eligible for the tax exemption, and the small business households which are entitled to the regime of turnover tax payment according to set quotas as well as the actual duration of business cessation entitled to tax reduction or exemption in accordance with the provisions in this Clause.

The General Taxation Department shall provide guidance in the procedures for the declaration and examination of tax reduction and exemption with regard to households ceasing business in accordance with this provision.

2. A business establishment which meets with difficulties due to the natural calamities, enemy sabotage or unexpected accidents, is eligible for reduction of turnover tax. The reduction shall correspond with the percentage of the damaged property but shall not exceed 50% of the turnover tax to be paid and the amount of reduced tax money shall not exceed 30% of the value of the damaged property. The duration for the tax reduction shall not exceed 12 months from the month when the establishment begins to generate income following the month when the damage occurs.

Example:

An establishment suffered from a fire in January 1996 with the damage valued at a total of 150 million VND, equivalent to 60% of the total value of its property. From March 1996 the establishment restored its production and earned revenue, so it was eligible for a reduction of turnover tax from March 1996 to the end of February 1997 (12 months); the maximum rate of the reduction in this case is 50% (not according to the damage value of 60%); if the amount of the 12-month 50% tax reduction money exceeds 30% of the value of the damaged property, the maximum rate of reduction shall be only 30% of the damage; in this case, the maximum reduction amount is: 150 million VND multiplied by (x) 30% = 45 million VND.

3. Cases eligible for tax reduction in accordance with Clause 3, Article 18 of the Law on Turnover Tax shall be as follows:

a/ A business establishment operating in a mountainous region or an offshore island, exploiting sea products far offshore, conducting scientific research or application of new technology, making a trial run on a new technology, when meeting with difficulties and suffering from losses, shall be considered for turnover tax reduction in the initial stage. The tax reduction for each year (solar calendar) shall correspond with the losses, but shall not exceed 50% of the amount of tax to be paid and the duration of the reduction shall not exceed 2 years (24 months).

An establishment exploiting sea products far offshore is the one which has been granted the license for offshore maritime exploitation activities by the maritime sources protection agency in accordance with Inter-ministerial Circular No.199-TT/LB of December 31, 1993 of the Ministry of Finance and the Ministry of Aquaculture providing guidances for Decision No.400-TTg of August 7, 1993 of the Prime Minister on the tax exemption for the offshore maritime exploitation.

In order to provide a basis for the consideration of tax reduction, the establishment requesting tax reduction shall have to clearly define the loss in each case, for example: Production establishment A in 1995 installed and made a trial run on a new technology. When balancing the 1995 taxes, the establishment had to pay 500 million VND of the turnover tax and suffered from a loss of 700 million VND, which, after settling by other measures, was reduced to 600 million VND, of which 300 million VND resulted from the trial run on the new technology; the establishment was entitled to a reduction of its turnover tax in 1995,that is 250 million VND, which is equivalent to 50% of the to be-paid turnover tax. In cases where the loss from the trial run is defined as 100 million VND (instead of 300 million VND), the establishment shall be considered for a reduction of 100 million VND. If in 1996, the establishment continues to suffer from losses due to this difficulty, it shall be considered for further reduction of the 1996 turnover tax.

b/ An establishment producing an item as substitute for import shall be eligible for a 50% reduction of the turnover tax in the initial stage, as from the time when the product sold on the market is recognized as having met the standards of a substitute for the import, and within the effective duration of the list of the substitues for imports. For an item with a production cycle of less than 6 months, the duration for the tax reduction is one year (12 months); for an item with a production cycle of more than 6 months, the duration for tax reduction is two years (24 months).

Example:

Enterprise A has produced arc-light electric bulbs since 1995. On January 1st, 1996, the Ministry of Planning and Investment announced that this item had been listed as one of the substitutes for imports the production of which is encouraged by the State. Through the test of the product's quality, the agency in charge of the management and measurement of the quality of products certified that from April 1st, 1996 the bulbs produced by the enterprise have reached the Vietamese quality standards; therefore the establishment shall be considered for a 50% reduction of the turnover tax for 12 months from April 1st, 1996. If on February 1st, 1997 the Ministry of Planning and Investment shall announce a new list of substitutes for imports, which does not include this item, the tax reduction shall be implemented only till the end of January 1997.

c/ A production establishment (in the group of branches and trades listed in Item I, Turnover Tax Table) which has been newly founded since 1993 and meeting with difficulties in the production, marketting of its products, or in the payment of the loans, shall be entitled to a 50% reduction of the turnover tax for a duration of one year (12 months) from the month when it begins to generate revenue; establishments which meet with many difficulties and continue suffering from losses in the year following the year of tax reduction, shall be considered for tax reduction for that year; the tax reduction shall correspond with the loss remaining after a settlement by other measures, but shall not exceed 50% of the obligatory tax and the total duration for the tax reduction shall not exceed two years (24 months). For the production establishments in mountainous regions or islands, the total duration shall not exceed 3 years (36 months) from the first month of the tax reduction.

In cases where a new production establishment conducts other business activities, when being considered for the reduction of the turnover tax, it shall be entitled only to the consideration for the turnover tax on the production activities.

A newly founded production establishment is the one which has newly received investment in construction, been granted a production license and which has directly registered and declared for the turnover tax payment with the local tax office. Establishments, which were set up previously and are now devided, splitted up, merged or renamed or invested to improve and expand their production or which are added with new production lines or new trades; or have changed to new production lines, and establishments founded through the purchase of other production establishments, which contributed or have contributed capital to the newly founded establishments with their properties, machinery and equipment or workshops, shall not be entitled to be considered for reduction of the tunover tax in accordance with this provision.

4. If a production and/or business establishment which has been simulantly entitled to various turnover tax reductions under the Law on Turnover Tax, the Law on the Promotion of Domestic Investment and other regulations, shall be entitled to only one tax reduction.

Example:

Textile Company A has been founded since January 1996 and is one of the establishments where new production technologies have been applied. If the Company is qualified for a tax reduction as stipulated for newly founded production establishments, it shall not be considered for other turnover tax reductions.

II. PROCEDURES AND DOSSIERS OF APPLICATION FOR TURNOVER TAX REDUCTION

A dossier of application for tax reduction submitted to the tax office shall be stipulated as follows:

1. For establishments meeting with difficulties caused by natural calamities, enemy sabotage or unexpected accidents as stipulated in Clause 2, Article 11 of Decree No.96-CP of the Government, the dossier shall include:

- An application (official dispatch) for tax reduction of the unit suffering from damages which clearly states the situation in which the damage has occured, the duration and amount of tax reduction.

- A report on the cause and extent of damages with the certification by responsible agencies ( police, a damage evaluation council or the financial agency managing capital of the establishment).

- A report on the balance-sheet or related documents, which serve as basis for the evaluation of assets and capital of the establishment before the damages occurred.

- An examination report of the tax office managing the establishment, which clearly determines bases for the consideration of tax reduction.

If the case is not under the competence of the local tax office, such tax office must consider the case, make written comments and send it together with the dossier of the establishment to the higher tax office for consideration and settlement.

2. For the establishments which meet with difficulties and apply for the tax reduction in accordance with the stipulations in Item 3a, Article 11 of Decree No.96-CP of the Government, the dossier shall include:

- The establishment's application or official dispatch for tax reduction, clearly stating the case and the proposed amount of tax reduction

- The financial balance-sheet of the year for which the tax reduction is requested, together with the examination record of the tax office certifying the losses and the causes of losses.

In cases where the establishment applies new technology or makes a trial run on new technology, it must obtain certification from the State managerial agency on the applied techology or the trial run of the new techological process.

If the case is not under the competence of the tax office that manages the establishment, the tax office must consider the case, make written comments and send it together with the dossier of the establishment to the higher tax office for consideration and settlement.

3. For establishments producing substitutes for imports as stipulated in Item 3b, Article 11 of Decree No.96-CP of the Government, the dossier shall include:

- The establishment's application for tax reduction which clearly states the item has been listed as one of the items whose production is encouraged so as to substitute for imports, the duration and amount of tax reduction.

- The certification of the State managerial agency that the products turned out have met the Vietnamese quality standards or can be used as the substitute for imports; the date of the certification must be written down clearly. The tax office which manages the establishment shall have to conduct examination and make comparision with the list of items produced with encouragement for the substitution for imports so as to settle the case within its competence or propose to the higher tax agency for consideration and settlement.

4. For newly founded establishments which apply for the tax reduction as stipulated in Item 3c, Article 11 of Decree No.96-CP of the Government, the dossier shall include:

- The establishment's application for tax reduction, stating the reasons, duration and amount of tax reduction.

- The decision on the founding of the production establishment, the business registration certificate which clearly defines its production lines and the item to be produced. For newly set-up production households, they have to obtain only business licenses which define their production lines and items to be produced.

- Related dossiers evidencing that the establishment has just invested in the purchase of machinery and equipment, the construction (or renting) of workshops (in form of a list summarizing the value of investment assets in groups and categories), the contract on renting workshops (if any) with the certification by the tax office managing the establishment.

For State enterprises, companies, factories (except for small business households), they must have investment projects, balance-sheets or reports on the commissioning of the newly built projects.

- The production and business plan of the year for which the tax reduction is requested clearly determining the turnover and the turnover tax to be paid.

- The certificate of the tax payment registration and declaration with the tax office.

The tax office which manages the unit has the responsibility to examine the dossier and define the actual time when the unit commences its production which generates turnover. If the unit is a newly founded production establishment eligible for turnover tax reduction as stipulated by law, the tax office shall within its competence make a decision on the tax reduction for the unit within its competence or send a written proposal together with the dossier of the unit to the higher tax agency for consideration and settlement.

5. The establishment's dossier of application for tax reduction as stipulated above must be the original one, for which the administrative procedures have been already completed. In cases where the dossier includes the copies: if they are the copies of documents or vouchers issued by other agencies or units such as the Decision on the establishment of enterprise, business licenses... they must be notarized the Notary Public Office; if they are the copies of documents issued by the establishment such as the balance-sheets, or the related vouchers, they must be fixed with the seal of the establishment.

III. COMPETENCE AND PROCEDURES FOR CONSIDERATION OF TAX REDUCTION

1. The competence for the consideration of turnover tax reduction is stipulated as follows:

a/ The Head of the Taxation Sub-department is authorized to consider tax reduction or exemption for small business households having low incomes and business households which are package tax payers and have suspended their business activities which are eligible for tax reduction or exemption as provided for in Point 1, Section I.

b/ The Head of the Taxation Department is authorized to consider and decide the tax reduction for business establishments entitled thereto by law with the amount of turnover tax reduction for each establishment is less than 50 million VND and the duration of tax reduction shall not exceed one year (12 months).

c/ The General Director of the General Taxation Dapartment is authorized to consider and decide the tax reduction for production and/or business establishments entitled thereto by law with the amount of turnover tax reduction for each establishment is less than 200 million VND and the duration of tax reduction shall not exceed one year (12 months).

d/ The Minister of Finance is authorized to consider and decide the tax reduction as provided for by law and for cases which are not under the competence of the tax offices of different levels.

The General Director of the General Taxation Department and the Heads of the Taxation Departments shall, with regard to the consideration and decision on the tax reduction for newly founded establishments or for establishments producing substitutes for imports, base themselves on the estimated amount of the tax reduction to define their competence in making decision.

If an establishment entitled to be considered for tax reduction as stipulated by law has already submitted dossier of application for tax reduction to the tax office and has suffered from losses while waiting for a decision from the competent agency, the local tax office is authorized to consider and allow such establishment to delay the tax payment which is equivalent to 70 % of the losses but shall not exceed the proposed amount of tax reduction.

2. The procedures for the tax reduction.

In all circumstances, a request for tax reduction by an establishment must be made with proper dossier which shall be submitted to the tax office that manages the establishment. Upon receiving the establishment's dossier for tax reduction, the tax office shall have to examine and determine whether the case is elegible for tax reduction as provided for by law or not, whether the dossier has been filed rightly and properly or not, then must compare such dossier with the reality, determined data and facts related to the tax reduction.

If the establishment's dossier is incomplete or made with mistakes, the tax office must request the establishment to supplement or readjust it promptly.

In cases where the establishment is not eligible for tax reduction by law, the tax office shall have reply the establishment in writting, explaining the reason why its request was rejected.

- In cases where the consideration of tax reduction is beyond the competence of the local tax office that manages the establishment, such tax office shall, after examining the dossier and the actual situation of the unit, make a written comment and send it to the higher tax office for consideration and settlement. Such written comment must be sent together with the already examined dossier of the unit, and at the same time the tax office shall inform in writting the unit of the place where the dossier has been sent to. The dossier to be sent to the higher tax office must be named and numberd.

- In case of the approval for tax reduction, the agency that has decided the reduction must issue the decision on tax reduction then send it to the unit and other concerned agencies for the implementation.

Based on the decision on the tax exemption or reduction, the tax office shall together with the establishment balance the turnover tax to be paid and redetermine the amount of losses and profits as well as other revenues to be remitted into the Budget.

- The agency that considers and decides the tax reduction has the responsibility to keep and preserve the dossiers on tax reduction in accordance with the stipulated regime.

E. HANDLING OF BREACHES

According to Article 19 of the Law on Turnover Tax, breaches of the Law on Turnover Tax shall be dealt with as follows:

1. The administrative sanctions shall be imposed on the following breaches of turnover tax:

a/ Organizations and individuals that fail to strictly observe the regulations on procedures for the tax registration and declaration, the establishment of books, the use and keeping of vouchers and receipts in accordance with the stipulations in Artciles 10 and 11of the Law on Turnover Tax, shall, depending on the seriousness of the breach, be subject to warning or fines.

b/ Organizations or individuals that make false tax declarations or evade tax payment, shall, beside paying the full amount of turnover tax as stipulated by law, be subject to a fine of from one to three times the amount of tax evaded:

- For the first breach: once

- For the second breach: twice

- For the third breach or more: three times

In cases where the breach is added with aggrevating factors, the first breach may be subject to a fine twice or three times the amount of tax evaded;

c/ Organizations and individuals that make late payment of tax or fines written in the tax notice, tax collection order or penalty decision shall, besides paying fully the tax or fines as provided for by law, be subject to a fine of 0.2% of the tax in late payment for each day of the late payment.

The payment deadline used as basis for calculating fines on the late payment of tax:

- With regard to the turnover tax, it is the time beyond the 15th day of the following month, when the establishment still fails to pay fully the tax of the previous month to the State Treasury.

- With regard to fines, it is the time determined by the tax office in the fine notice or in the tax or fine collection order.

d/ Organizations and individuals that intentionally delay the tax payment shall be dealt with as follows:

- Subject to the deduction from their bank accounts for the payment of tax or fines. The bank concerned shall have to base itself on the tax notice, tax collection order or order on the collection of fines from the tax office so as to make the deduction from the accounts of the concerned business etablishments and remit the tax or fines to the State Budget.

- Subject to temporary seizure of their goods or other objects as the security for the full payment of tax and/or fines.

- Subject to the asset inventory as provided for by law to ensure the payment of the tax or fine.

The tax offices of different levels shall, when discovering breaches of the Law on Turnover Tax by business establishments, have to examine and clearly define the acts of violations, the seriousness and causes of such violations; the responsibilities of organizations and individuals for each act of violations; and file dossiers as stipulated by law. Based on the stipulations on the regime of the administrative sanctions in the field of taxation, the tax office shall decide the case by itself or report it to a higher tax office for consideration and decision according to the stipulated competence.

2. Individuals who evade a large amount of tax or who have been subject to administrative sanctions as stipulated in Point 1 above, and again commit tax evasions in large amount or commit other serious crimes, shall be subject to penal liability in accordance with Article 169 of the Penal Code.

F. COMPLAINTS AND STATUTE OF LIMITATIONS

1. Right to the lodge complaints:

According to Articles 24 and 25 of the Law on Turnover Tax, organizations and individuals shall have the right to lodge complaints in respect of incorrect application of the Law on Turnover Tax towards them.

The complaint must be sent to the tax office, which has issued the tax collection order or decision on handling the violations within 30 days from the date when the organization or individual receives such order or decision. Pending the resolution, the complainants shall still have to pay in full and on time tax amount of tax or fines as announced.

If the complaining organization or individual disagrees with the decision of the tax office; or upon the expiry of the time limit of 30 days from the date the complaint was sent, it still has not received the reply, such organization or individual shall be entitled to send the complaint to the higher tax office.

2. Responsibilities and competence of the tax office:

Tax offices of different levels shall, within 15 days from the date of receiving complaints from the tax paying units, have to consider and settle the complaints. With regard to complicated cases which take time to conduct investigation and examination, the tax office must inform the units invovled thereof, but the time limit for the settlement shall be not later than 30 days from the date of receiving the complaints.

As stipulated in Articles 26 and 27 of the Law on Turnover Tax, the tax office which receives a tax complaint must issue decison on either:

- Retaining the previous decision; or

- Changing forms, extents and measues of handling breaches; or

- Rescinding the previous decision and suspending its enforcement.

In cases where the tax office changes or rescinds the decision of the previous settlement or the higher tax office issues new decision, the tax office which issued the previous decision must reimburse the amount of tax or fines improperly collected and compensate for damage (if any) to the establishment. The time limit for settlement shall not exceed 15 days from the date of changing the decision or receiving new decision from the higher tax office.

In cases where it has discovered and concluded that there was a false tax declaration or tax evasion or a mistake in the tax calculation or in penalty imposition, the tax office shall have to collect tax or fines in arrears or reimburse the amount of tax or fines wrongly calculated within 3 years prior to the time when such false declaration or evasion of tax, or such mistakes were discovered.

G. ORGANIZATION OF IMPLEMENTATION

1. This Circular takes effect from January 1st, 1996 and replaces Circular No.73A-TC/TCT of August 30, 1993, Circular No.114-TC/TCT of December 16, 1994 and Circular No.40-TC/TCT of May 25, 1995 of the Ministry of Finance providing guidances on turnover tax.

All guidances on turnover tax in other legal documents which are contrary to this Circular are now annuled.

Cases eligible for the tax reduction in 1995 or earlier shall be considered for settlement in accordance with the then provisions and the decisions on the turnover tax reduction made in accordance with the regulations of that period shall continue to be implemented with the rate and duration of the tax reduction already determined.

2. The General Director of the General Taxation Department shall have to organize and direct the taxation service in inspecting, guiding the units to correctly implement the Law on Turnover Tax, Decree No.96-CP of December 27, 1995 of the Government providing details for the implementation of the Law on Turnover Tax and the Law on Amendments and Supplements to a Number of Articles of the Law on Turnover Tax, and this Circular.

In the process of the implementation if there is any difficulty or obstacle, the units and agencies are requested to promtply report it to the Ministry of Finance for consideration and guidance.

For the Minister of Finance

Vice Minister

VU MONG GIAO